Lilly and its partner in the newly-formulated insulin adventure -Alkermes - have been working together since 2001 on inhaled formulations of the drug and this latest move to extend their collaboration illustrates both companies' confidence in the market potential of the AIR inhaled insulin system.
Under the terms the deal, Alkermes will be the exclusive commercial manufacturer of insulin powder for AIR.
The new agreement also sees Lilly investing in the creation of a second manufacturing line at Alkermes' commercial-scale production facility, expanding the plant's powder production capacity to meet post-launch requirements.
The AIR Insulin System is currently undergoing Phase III clinical trials as a potential treatment for Type I and Type II diabetes.
If approved to be commercialised, AIR would be the second inhalable insulin product to reach the market. Pfizer launched its own inhaled insulin drug - Exubera - in July for Type II diabetes in the US, and the figure being thrown around for the market potential of the therapy was as high as $1.5bn (€1.3bn) a year.
Exubera, which is now also available in Germany, Ireland, and the UK, is expected to be followed, in 2010, by Eli Lilly/Alkermes' AIR system, NovoNordisk/Aradigm's AERx-iDMS and MannKind's Technosphere.
The number of people with Type II diabetes is expected to reach the 40m mark by 2012 and drug makers have seen a goldmine in alternatives to injectable insulin.
However, a recent research was more sceptical over the future of inhalable insulin saying it is unlikely to achieve the blockbuster status the industry had hoped for.
According to a Datamonitor report published last October, the unmet need for these newly-formulated drugs is too low to fuel a multibillion-dollar market - bad news for a number of manufacturers who have long pursued the development of newly-formulated insulin as a potential money-spinner.
But the main players in the field, such as Eli Lilly, still see inhalable insulin as a high potential alternative to the injectable version.
"We are very pleased that Alkermes will be the exclusive worldwide commercial supplier of AIR Insulin powder," said Richard Pops, chief executive officer of Alkermes.
"Our expanded agreement with Lilly underscores the potential we see for this innovative treatment option, and plans are now underway to build the additional capacity required to support our projected future commercial demand for the AIR Insulin System."
In addition, under the terms of the new deal, Alkermes is responsible for overseeing construction of the second manufacturing line, including process development, scale-up and validation, as well as for the manufacture and supply of inhaled insulin powder.
According to both companies, if inhaled formulations of insulin are successfully developed and commercialised, Lilly will purchase product from the facility. However, additional terms of the agreement were not disclosed.
"Lilly and Alkermes have built a very strong relationship around the development of the AIR Insulin System," said Bryce Carmine, president of global brand development for Lilly.
"This manufacturing agreement broadens that relationship, and provides the necessary AIR Insulin capacity to meet the needs of patients worldwide."